Legt2751

Topics: 2009, Income tax, Tax rate Pages: 7 (1963 words) Published: February 6, 2011
THE UNIVERSITY OF NEW SOUTH WALES

Australian School of Business

School of Business Law and Taxation LEGT2751 BUSINESS TAXATION SEMESTER TWO - 2009 FINAL EXAMINATION
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Time Allowed: 2 hours
Reading Time: 10 minutes

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This examination paper has: 5 pages Total Number of Questions: 3 Total Marks Available: 40 Answer TWO Questions

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All Questions are of Equal Value
All answers must be Written in Ink This paper MAY be retained by the candidate

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SPECIAL INSTRUCTIONS
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Each question must be answered in a separate booklet Answers must be clearly written. Answers that cannot be read will not be marked Candidates are permitted to bring electronic calculators into the examination room. UNSW approved There are no restrictions on materials you can bring into the examination room. It is an open book examination ...Ip/ease see over

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QUESTION ONE

(20 Marks)

Martin purchases a derelict buifding on 1 January Yl in Surry Hills for $500,000. To finance the purchase Martin borrows $500,000 at 10% from Big Bank Ltd. Prior to Martin's purchase the building had been leased by a charitable organisation to a women's refuge at a nominal rental of $1 00 per week. At the time of Martin's purchase the lease to the women's refuge has a year to run. He buys the building subject to that lease. Once Martin purchases the building he shouts, "I have a dream!" Martin's dream is that one day the building will be a multiculturaJ cafe, the JlWorld Community Cafe", where all will be able to come and eat Its logo will be a globe of the world inside a coffee cup. On 14 Februal)' Yl Martin applies to the local council for permission to redevelop the building as a cafe. On 14 February Y1 Martin also gives the women's refuge one month's notice to vacate the premises. The women's refuge refuses to vacate and Martin incurs $10,000 in legal fees associated with ejecting the women's refuge. The women's refuge finally vacates on 1 June Y1. The local council gives consent to the redevelopment on 1 May Yl. On 1 May Y1 Martin, to fully redevelop the building, borrows a further $700,000 at 10% from Big Bank Ltd. Martin redevelops the building so that, in external appearance, its roof looks like a globe of the world inside a coffee cup. Inside the building a system of pipes connects a central coffee making machine located in the globe shaped roof with individual nozzles on each table. The total cost of the redevelopment is $700,000 which includes $100,000 being spent on the central coffee making machine and the individual nozzles and the balance being spent on changes to the external appearance of the building. Martin estimates the effective life of the coffee making machine and nozzles to be 10 years and estimates the effective life of the changes to the external appearance of the building to be 30 years. The cafe opens on 1 November Y3. On lS lh November Y3 Martin incurs $50,000 in unsuccessfully opposing an application for a registered design by a competitor, World Cup Coffee. The design used by World Cup Coffee depicts a cup of coffee inside a globe of the world. Required: 1. Advise Martin whether the interest payments on each loan from Big Bank Ltd are deductible under s8-1. 2. Advise Martin whether capital allowances under Division 40 can be obtained for the redevelopment of the external appearance of the building and/or the installation of the coffee making machine and pipes. 3. Regardless of your answer to 2, assume that Martin is able to claim Division 40 capital allowances. Calculate the Division 40 capital allowances that will be available to him in Y1 using the prime cost method. 4. Regardless of your answer to 2, assume that Martin is not able to claim Division 40 allowances. Advise him of whether he can claim other deductions in respect of any of the items referred to in 2 above and, if so, calculate...
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